Chart of Accounts – How to Get Organized & Efficient

By: AvidXchange

April 10, 2019

Tedious as it may seem, every business transaction needs to be recorded in the right account. The problem, however, is that unless you have automated accounts payable software, finding the correct account isn’t always such a simple task. Fortunately, a chart of account can help you with that.

Whenever you need to find a line item on an old invoice, do you find yourself having to go back and search through mountains of paperwork, or thumb through rows of filing cabinets drawers? If so, then you would benefit from using a chart of accounts.

Having a complete list of accounts being run by your company makes for simple tracking and frictionless logging. In many organizations, they’re a necessary tool for organizing financial records and setting up accounting systems.

To get you up to speed regarding what a chart of accounts is, how they’re used, and why they’re vital for your business’s success, we put together this comprehensive guide. In it, we will show you why a chart of accounts isn’t just a “nice-to-have” tool, but an organizational necessity if you want to grow your business and manage multiple accounts at scale.

Chart of Accounts 101

A chart of accounts (COA) is a list of all accounts—including asset, liability, expense, revenue, and equity—that are included in a business’s general ledger. The size of the company will largely determine the number of accounts listed in a company’s COA. For instance, your local mom and pop shop might have a dozen total accounts whereas Microsoft likely has hundreds.

While this provides a basic chart of accounts definition, it doesn’t quite make clear where the value of a COA is found. The central purpose of a COA is to provide a foundation within which all of a company’s financial records are kept according to an easy-to-follow, logical structure.

We’re often asked, “in which order are the accounts listed in the chart of accounts?” Fortunately, the answer is simple. Accounts are listed in the order that they appear on a company’s financial statements, such an income statement or balance sheet. Therefore, the COA starts with cash, moving on to liabilities and equity, and eventually finishing with revenues and expenses.

Balance Sheet Accounts

Assets

Liabilities

Owner’s Equity

Income Statement Accounts

Operating Revenues

Operating Expenses

Non-Operating Revenues and Gains

Non-Operating Expenses and Losses

Sample Chart of Accounts

To get a better idea of what a chart of accounts is and what it looks like, refer to the following sample. Although no two charts will look identical, most will follow a basic framework that resembles what you see below, especially if you’re a small company with few vendors and a limited number of products.

Occasionally, you may find a chart of accounts that is organized by department. For instance, it’s not uncommon to find similar expense information listed for the accounting department, marketing department, software development department and so forth that all share the same characteristics.

The size and scope of the organization will ultimately determine how this information is presented—with greater uniformity among smaller firms.

Most chart of accounts examples will follow a similar design as the one listed above. While this might prove useful for learning about how a chart of account is structured, a chart of accounts example says little about how it should be interpreted or its underlying logic.

Making Sense of the COA

Think of a business as an organic, living entity—like a tree—with various branches that each correspond to a different department (i.e., sales, marketing, human resources, etc.).

Each branch on this tree has its own expenses and liabilities to take care of, which can be visualized as leaves on the tree.

Therefore, every department contains enumerated accounts that appear on the COA. To extend the analogy further, you can think of the accounts subtypes as the ripples on the leaves. On a standard COA, a typical account coding scheme will appear like this:

Assets: 100 -199

Liabilities: 200 – 299

Equity: 300 – 399

Revenues: 400 – 499

Expenses: 500 – 599

You may have noticed that chart of accounts numbering is a little wonky and seemingly all over the place. However, the COA numbering system follows a careful internal logic that is structured according to three components:

Division Code: A two-digit serial number that specifies the company division if the company has more than one division or has multiple subsidiaries.

Department Code: A two-digit serial number that specifies the company department within a multi-department company (i.e., marketing, sales, etc.).

Account Code: A three-digit serial number that corresponds to an account type (i.e., revenue, liabilities, etc.).

When put together, the above codes form a pattern that resembles an “xx-xx-xxx” serial number. However, smaller companies with one division may only include the latter two components, forming “xx-xxx.” Altogether, a chart of accounts number for advertising expenses (“660”) within a marketing department (“07”) within a single-division company will appear as: 07-660.

Accessing the QuickBooks Chart of Accounts

If you’re one of the many small to medium-sized enterprises that uses QuickBooks to manage your books, you’ll be relieved to know that sample charts of accounts for QuickBooks are available. When you create your account, you can select from a variety of pre-created COAs or import a CSV file that contains a chart of account template manually.

No matter whether you’re using Intuit’s QuickBooks Desktop 2019 or the latest QuickBooks Online (QBO), there are several chart of accounts template types that can be selected from the “Lists” drop-down under the “Company” tab. Alternatively, you could press “CTRL+A” on your keyboard while using QuickBooks.

AvidXchange has an integration with Quickbooks where you can automate your accounts payable processes. You can learn more about our Quickbooks integration here.

Clean Up Your Chart of Accounts by Automating Your Payables

Simply by looking at your chart of accounts, you can see how much money your company has, how much it owes, and how much is coming in and out of the company.

Thankfully, digital tools exist so you can import your paper-based chart of accounts and store it securely within a digital environment. This way, you never have to worry about tracking down a dollar amount from an old invoice or searching endlessly through pen-and-paper account records. Instead, you can pinpoint any account in seconds using automated AP solutions with the click of a button.